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The Insurer In Full: Inland marine carriers suffer as Covid-19 cancels events and travel

The inland marine market has been one of the most consistently profitable insurance classes in recent years...

...but it has been hit hard by Covid-19 with contingency losses and cancelled events and travel causing premiums to drop for the first time in over a decade, according to AM Best.

Inland marine – a group of diverse coverages including animal mortality, cargo, construction, credit property, difference in conditions, event cancellation, fine art, jewellery, moveable goods, oil and gas extraction, pet health insurance, product warranty, property in transit, trip cancellation and truck and trailer rentals, among others – has historically outperformed the US property casualty industry as a whole, AM Best said.

But in 2020 its profitability plummeted by 16 points year on year while the aggregate inland marine loss ratio rose nearly 5 points above that of the overall US property casualty industry.

US inland marine – direct loss ratio

“The inland marine line, which has consistently outperformed the rest of the industry, had a down year in 2020 because of Covid-19,” AM Best said.

Owing to the diverse nature of the inland marine line, there are various reasons why the class suffered in 2020. But AM Best noted the decline of the travel insurance sector last year played a prominent role.

“The number of passengers travelling plummeted in March and April. Despite a recovery, air travel through the second half of 2020 and into 2021 is still just over 40 percent of that during the same period in 2019,” said AM Best.

“This drop had a double impact on travel insurance: Trips planned in advance of the pandemic were cancelled, which led to loss payments on existing policies, and fewer new trips were planned, which depressed direct premiums written (DPW) for travel insurance,” the ratings agency explained.

US inland marine – net combined ratio, 2010-2020

Another segment that suffered was the specialist insurance market for television and film production, which hit the contingency market, as did the cancellation of various events.

“Contingency policies written before the pandemic will continue to run off, and new policies will have stricter terms and conditions,” AM Best said.

“Many film production covers are now being written with a minimum of $1mn self-insurance – some even higher. Some television and film production carriers simply stopped writing contingency covers during the pandemic,” the rating agency explained.

Elsewhere, there has been a rebound in the construction market from the lows that were experienced in April last year.

US inland marine – direct premiums written

At the same time, AM Best said federal stimulus in the US “should spur construction and drive-up demand for coverage such as insurance on transportation, property held by bailee, builders’ risk, and contractors’ equipment”, a further boon for carriers.

Pet insurance a “bright spot”

It was not all bad news for the inland marine market in 2020 however, with AM Best describing the pet insurance sector as a “bright spot”.

In 2020, pet insurers saw their collective DPW increase by about 14 percent year on year, and while its direct loss ratio increased, it was still lower than inland marine as a whole.

“Overall, we see pet health insurance growing and maintaining a relatively stable loss ratio, with the increase in the overall loss ratio increase among these companies coming from the other inland marine coverages written, commensurate with the rest of the industry,” AM Best said.

The future growth prospects for the pet insurance market seem bright as well, with companies including Lemonade dipping their toe in the sector, with the class accounting for 6 percent of the insurtech’s in-force book last year. The spike in pet ownership during the pandemic may also fuel demand for the coverage, AM Best suggested.

Despite the increase premiums in the pet insurance sector and construction coming back after its initial pandemic-related downturn, AM Best said the declines in contingency coverages – i.e. those for travel, events and film production – and the overall economic decline which impacted freight markets meant that inland marine volume decreased in 2020 for the first time in over 10 years.

The premium volume seen in 2020 was still higher than that generated in 2018 however, and the expectation is the sector will return to growth when economic activity returns to normal post-pandemic.


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